The Chesapeake Beach Town Council was presented Monday night with a concept idea for a proposed utility rate structure that would add a minimum bill to and at least triple both the water and sewer rates.

Jean Holloway, a sustainable infrastructure circuit writer with the Delaware Rural Water Association, was hired as a consultant by Mayor Bruce Wahl to create a new utility rate structure because the council could not agree on one.

Holloway told the council Monday night she “deliberately” did not look at previous proposed structures and created hers “from scratch” using data from the budget the council agreed upon at the work session two weeks ago, actual accounts and standard calculations and forecasting.

A minimum base rate for both water and sewer usage was included in the structure, which Holloway said she calculated based on the “recovery of cost,” or a fixed rate, which is the debt service and reserve funds for the utility fund.

“Those things have to be paid whether you sell a gallon of water or a million gallons of water,” she said of the debt service and reserve. “That’s what I consider fixed cost, and I base the minimum bill on that fixed cost.”

Including a minimum bill is a standard practice recommended by the American Water Works Association, Holloway said, “because there is a cost for just having a service available to the customer’s property.”

Based on the town’s debt service and reserves, she calculated for water use a minimum bill between $30 and $40 and a user rate between $2.10 and $2.70 per thousand gallons. She said for 10,000 gallons of water used, the bill would be between $57 and $61 per quarter, or between $282 and $286.79 per year. Currently, ratepayers pay $19.37 per quarter for every 10,000 gallons of water used.

For sewer use, Holloway said she calculated a minimum bill between $60 and $75 and a user rate between $5.35 and $6.25 per thousand gallons. For 10,000 gallons of sewer used, the bill would come to between $122.50 and $128.50 per quarter, or between $615 and $621 per year. The current rates for sewer use are $33.90 per quarter for every 10,000 gallons used.

The concept figures presented to the council are what should be used to recover all costs, Holloway said, adding that the town’s rates have “been way too low way too long.” The minimum bill would be “straight across the board” and everyone would pay for what they used. If the town wanted the rate to reflect different types of users, the “most equitable way to do that is by equivalent meter size,” she said.

Council member Eric Reinhardt said he was “happy with [Holloway’s] general approach” and supported the “pay-for-what-you-use approach.” What he couldn’t support, he said, was adopting a minimum bill to cover the fixed costs and, instead, suggested building those costs into the user rate.

Holloway said she would not recommend doing that because if a disaster, such as a hurricane, destroyed the wastewater treatment plant so that the town could not serve any water, the debt service still has to be paid and, without a minimum bill, it wouldn’t be.

“There is a cost associated with … availability of the service,” Holloway said.

In response to Reinhardt, council member Stewart Cumbo later asked how not supplementing the fixed cost with a minimum bill would affect the user rate.

Reinhardt said the system is burdened differently by different users and those who burden the system more should pay more for its replacement.

“That’s why I think the reserve and debt service and those other types of costs should be built into the total expenditures numbers and divided by the number of gallons used to come up with your rate,” Reinhardt said. “That wouldn’t have a fixed cost at all; everything would be in a per-use structure.”

“… If you want to reduce the level of the minimum bill or eliminate it, recognize the usage rate has to go up accordingly,” Holloway said.

Council member Valerie Beaudin agreed with Reinhardt and said higher volume users burden the system and would cost more, and “that part of the reserves ought to be part of the variable cost.” She also did not agree with a minimum bill because people already pay $20,000 in capital connection fees to have availability of water and sewer. Using the same budget numbers as Holloway, Beaudin said she figured out a universal flat rate of $9.65 per 1,000 gallons used, which she said was a “substantial difference” for a user of 10,000 gallons.

Council member Pat “Irish” Mahoney said Environmental Protection Agency standards include debt service in fixed costs but do not include reserve funds. He said without the reserve portion of the fixed cost, which is about half of the fixed cost built into the minimum bill for sewer and about a third of the fixed cost for water, the overall quarterly bill for ratepayers would be significantly reduced, and recommended removing the reserve portion of the fixed cost.

Council member Bob Carpenter said complying with Holloway’s proposal would triple water and sewer rates and significantly impact the higher volume users within the town. He said he recognized the need for cost recovery, but “there’s a human factor here.”

“To increase water and sewer bills for anyone … is going to be very difficult for a lot of people … to handle,” Carpenter said. “I recognize the problem, but is the solution to triple water rates for the average user?”

Wahl said “for decades” the town has been using capital connection fees to offset operational costs, and Holloway’s proposal will “get us out of that bad habit.” He said one option discussed prior to Monday night’s work session was to mitigate rates by borrowing money from the general fund reserve fund. He said a loan from that reserve fund, “that will need to be paid back,” could be used to offset operating costs in the upcoming fiscal year and would allow the utility rates to be phased in over three years.

During public comment, resident Thomas Smith urged the council to accept Holloway’s concept proposal because she “knows what she’s talking about.”

“Listen to this lady,” he said. “She’s the expert here.”

Smith said he liked the idea of the higher rates being phased in, “but I also understand that this is a bitter pill that we as people have to swallow … because of the inability or inaction from” past town councils.

“I understand what you’re saying about soften[ing] the blow for people that don’t have a lot of money, but somebody’s gotta pay,” he said. “… I don’t have any kids in school but I still pay school tax, so it’s all part of being in a community and I think everybody realizes that.”

Before adjourning, Wahl said it is “unrealistic” to try to introduce a utility fund budget at the April 18 town council meeting. He said an ordinance for the budget will be introduced at the meeting in May and voted on in June.